Consumers Are More Worried About the Labor Market and Inflation, NY Fed Report Says

A “We’re Hiring” sign displayed at a Taco Bell restaurant in New York. (Gabby Jones/Bloomberg)

Key Points

• Americans’ projected likelihood of the US unemployment rate being higher in one year increased by 2 percentage points to 41.1%.
• Median one-year inflation expectations rose to 3.4% in September from 3.2% in August, with five-year expectations at 3%.
• The perceived probability of losing a job in the next 12 months increased by 0.4 percentage points to 14.9%.

Americans grew more pessimistic about the labor market and future inflation in September, according to a new report from the Federal Reserve Bank of New York.

“Labor market expectations continued to deteriorate with consumers reporting lower expected earnings growth, greater likelihoods of losing jobs, and a higher likelihood of a rise in overall unemployment,” the report reads.

Specifically, Americans see greater odds—41.1% on average—that the U.S. unemployment rate will be higher one year from now, the New York Fed’s September Survey of Consumer Expectations found. That projection is up 2 percentage points from August. It is unclear what the official unemployment rate was last month—the Bureau of Labor Statistics was scheduled to release the September jobs report last Friday, but the report was postponed because of the ongoing government shutdown.

Third-party data, including the ADP National Employment Report, suggest hiring was weak in September, underpinning consumers’ gloominess.

Indeed, consumers’ concerns about the labor market were fairly all-encompassing, according to the New York Fed’s survey. The perceived likelihood of losing a job in the next 12 months increased, gaining 0.4 percentage points to 14.9%. Median expectations for earnings growth dipped 0.1 percentage point to 2.4%—the lowest reading since April 2021.

Inflation expectations suggest that rising prices are also weighing on consumers’ economic outlook.

Median inflation expectations in September for the year ahead rose to 3.4% from 3.2% in August. People making less than $50,000 with a high school education at most expected the biggest jumps in one-year inflation expectations, the survey found.

Five-year inflation expectations ticked up to 3% from 2.9% the prior month, while three-year expectations were unchanged at 3%.

Inflation measured by the consumer price index rose to an annual pace of 2.9% in August from 2.7% in July, reflecting the early effects of new tariffs implemented over the course of the summer. The September reading is due Oct. 15, provided that the federal government has reopened by then. Economists polled by FactSet are expecting inflation to tick up to an annual reading of 3%.

Concerns about the labor market and rising inflation may be starting to creep into consumers’ spending plans. Median spending growth estimates fell by 0.3 percentage points to 4.7%, falling below the trailing 12-month average of 4.9%.

That said, consumers’ spending and their assessment of the economy haven’t quite correlated in the postpandemic years. Sentiment—measured by the University of Michigan’s consumer sentiment index—has yet to rebound to its prepandemic levels, but spending has been resilient, growing at a steady clip despite the economic challenges.

The disparity between the gloomy perception of the economy and actual spending behavior suggests that while Americans are worried about the future, their current household finances are holding up better than expected.

“Perceptions about households’ current financial situations compared to a year ago improved somewhat with a larger share of respondents reporting that their households were better off compared to a year ago,” the survey found.

That’s especially true for higher-income households, experts say, who have had an outsize role in fueling spending growth these past few years, thanks to home-equity appreciation and stock-market gains. Indeed, many consumers believe the market’s record-breaking bull run will continue, with the mean perceived probability that U.S. stock prices will be higher 12 months from now, increasing by 0.9 percentage points to 39.8%.

And indeed, indexes were moving higher in early morning trading Tuesday, with the S&P 500 on pace for its eighth consecutive daily gain.

Write to Sabrina Escobar at sabrina.escobar@barrons.com